Standard Costing: Transactions Posting to the Inventory Distribution Journals

Outlined below is every transaction that is posted to the inventory distribution journals when standard costing is being used.

See Posting to General Ledger - Standard Costing.

Purchasing Transactions

The following transactions are posted to the inventory distribution journal named PO Dist.

  • Purchase Order Receipt:
      Debit Credit
    Inventory xxxx  
    Vouchers Payable   xxxx
    Purchase Variance xxxx   or xxxx
    Note:  Since this transaction is for a purchased item, only inventory material cost details component is posted.
    • Inventory = (quantity received * standard unit cost from the Items form)
    • Vouchers Payable = (quantity received * po unit cost)
    • Purchase Variance = (qty received *(std unit cost - po unit cost))

    The amount that inventory is debited is the quantity received multiplied by the item's standard unit cost:

    AID = QR * ISUC

    where:

    • AID = Amount that Inventory is Debited
    • QR = Quantity Received
    • ISUC = Item's Standard Unit Cost

    Vouchers Payable is credited with quantity received multiplied by the purchase order line item unit cost. If there is a difference between the item's standard unit cost and the purchase order unit cost, the purchase cost variance account is either debited or credited with the difference, which balances the transaction.

    If (ISUC - POUC) >> 0, then PCVA = DD or CD

    where:

    • ISUC = Item's Standard Unit Cost
    • POUC = Purchase Order Line Item Unit Cost
    • PCVA = Purchase Cost Variance Amount
    • DD = Debited with the Difference
    • CD = Credited with the Difference
  • Purchase Order Return:
      Debit Credit
    Vouchers Payable xxxx  
    Inventory   xxxx
    Purchase Variance xxxx or xxxx
    Note:  Since this transaction is for a purchased item, only inventory material cost details component is posted.
    • Vouchers Payable = (quantity returned * po unit cost)
    • Inventory = (quantity returned * Items standard unit cost)
    • Purchase Variance = (qty returned *(std unit cost - po unit cost))

    The amount that vouchers payable is debited is the quantity returned multiplied by the purchase order unit cost. Inventory is credited with quantity returned multiplied by the item's standard unit cost. If there is a difference between the item's standard unit cost and the purchase order unit cost the purchase cost variance account is either debited or credited with the difference, which balances the transaction.

  • Voucher Generation:
      Debit Credit
    a. If vouchered cost is greater than receipt cost:    
    Vouchers Payable xxxx  
    Purchase Variance xxxx  
    Accounts Payable   xxxx
    b. If vouchered cost is less than receipt cost:    
    Vouchers Payable xxxx  
    Purchase Variance   xxxx
    Accounts Payable   xxxx

    The previous transaction is created only if any line items were vouchered at a different cost than the cost at which they were received into inventory. (The cost at which the items were received into inventory is the line item unit cost field at the time of the receipt.)

    Variance = (VP - AP)

    where:

    • VP = (qty vouchered * received cost)
    • AP = (qty vouchered * vouchered cost)

Production Transactions

The following transactions are posted to the inventory distribution journal named SF Dist.

  • Job Material Issue:
      Debit Credit
    WIP Material xxxx  
    WIP Labor xxxx  
    WIP Fixed Overhead xxxx  
    WIP Variable Overhead xxxx  
    WIP Outside xxxx  
    Inventory Material   xxxx
    Inventory Labor   xxxx
    Inventory Fixed Overhead   xxxx
    Inventory Variable Overhead   xxxx
    Inventory Outside   xxxx
    Fixed Material Overhead Applied   xxxx
    Variable Material Overhead Applied   xxxx

    At the time of issue, the work in process account is debited with the total standard cost of the material being issued plus the fixed and variable material overhead amounts:

    WIPA = MC + (FMO * MC) + (VMO * MC)

    where:

    • WIPA = WIP Amount
    • MC = Material Cost
    • FMO = Fix Material Overhead
    • VMO = Variable Material Overhead

    MC = SUC * QI

    where:

    • MC = Material Cost
    • SUC = Standard Unit Cost of Material
    • QI = Quantity Issued

    Inventory is credited with the material cost shown above. The Overhead accounts are credited with the material cost multiplied by the material overhead rates.

  • Job Material Withdrawal:
      Debit Credit
    Inventory Material xxxx  
    Inventory Labor xxxx  
    Inventory Fixed Overhead xxxx  
    Inventory Variable Overhead xxxx  
    Inventory Outside xxxx  
    WIP Material   xxxx
    WIP Labor   xxxx
    WIP Fixed Overhead   xxxx
    WIP Variable Overhead   xxxx
    WIP Outside   xxxx

    The amount used is the quantity withdrawn multiplied by the item's standard unit cost.

  • Post Job Transaction:
      Debit Credit
    WIP Material xxxx  
    WIP Labor xxxx  
    WIP Fixed Overhead xxxx  
    WIP Variable Overhead xxxx  
    WIP Outside xxxx  
    Direct Labor Applied   xxxx
    Fixed Overhead Applied   xxxx
    Variable Overhead Applied   xxxx
    Labor Rate Variance xxxx or xxxx
    Labor Usage Variance xxxx or xxxx
    Fixed Overhead Usage Variance xxxx or xxxx
    Variable Overhead Usage Variance xxxx or xxxx

    Work in process (WIP) is debited (increased) by what the labor and overhead should be for the transaction entered based on the standard run and setup times in the Job Operations record and the standard setup and run rates in the Work Centers form. The calculation varies depending on the type of job transaction being processed.

    WIP amount for (S)etup transaction =

    [(SSH * WCSSR) * EFFICIENCY FACTOR]+

    [(SSH * DFOR) * EFFICIENCY FACTOR] +

    [(SSH * DVOR) * EFFICIENCY FACTOR]

    where:

    • SSH = Standard Setup Hours
    • WCSSR = Work Center Standard Setup Rate
    • DFOR = Department Fixed Overhead Rate
    • DVOR = Department Variable Overhead Rate

    WIP amount for (R)un Transaction =

    [(AP * SRHU * WCSRR) * EFFICIENCY FACTOR] +

    [(AP * SRHU * DFOR) * EFFICIENCY FACTOR] +

    [(AP * SRHU * DVOR) * EFFICIENCY FACTOR]

    where:

    • AP = Actual Pieces
    • SRHU = Standard Run Hours (Labor) per Unit
    • WCSRR = Work Center Standard Run Rate
    • DFOR = Department Fixed Overhead Rate
    • DVOR = Department Variable Overhead Rate

    Direct labor applied, fixed overhead applied, and variable overhead applied amounts are based on the actual hours reported for the transaction:

    WIP Amount for (C) Machine Transaction =

    [(AP * SRHMU * WCFOR) * Efficiency Factor] +

    [(AP * SRHMU * WCVOR) * Efficiency Factor]

    where:

    • AP = Actual Pieces
    • SRHMU = Standard Run Hours (Machine) per Unit
    • WCFOR = Work Center Fixed Overhead Rate (Machine)
    • WCVOR = Work Center Variable Overhead Rate (Machine)

    FO = (AH * DFOR) or (M * MFOR)

    where:

    • FO = Fixed Overhead
    • AH = Actual Hours (Labor)
    • DFOR = Department Fixed Overhead Rate
    • M = Material
    • MFOR = Material Fixed Overhead Rate

    VO = (AH * DVOR) or (Material * MFOR)

    where:

    • VO = Variable Overhead
    • AH = Actual Hours (Labor)
    • DVOR = Department Variable Overhead Rate
    • M = Material
    • MFOR = Material Fixed Overhead Rate

    An entry is made for labor rate variance if there is any difference between the actual employee manufacturing rate and the work center standard pay rate:

    LRV = (MR - SR) * AH

    where:

    • LRV = Labor Rate Variance
    • SR = Standard Rate
    • MR = Manufacturing Rate
    • AH = Actual Hours (Labor)

    A labor usage variance, fixed overhead variance, and variable overhead variance are posted if the actual hours are less than (<) or greater than (>) the time it should have taken to complete the pieces that were reported:

    LUV = ((((SRHU / EF) * PC) - AH) * SPR)

    where:

    • LUV = Labor Usage Variance
    • SRHU = Standard Run Hours per Unit
    • PC = Pieces Complete
    • AH = Actual Hours (Labor)
    • SPR = Standard Pay Rate
    • EF = Efficiency Factor (100/ER)
    • ER = Efficiency Rate
    • WCSSR = Work Center Standard Setup Rate

    SET-UP: LUV = ((SSHU - AH) * WCSSR) / ER

    FOUV = (((SRHU / EF) * PC) - AH) * DFOR)

    where:

    • FOUV = Fixed Overhead Usage Variance
    • SRHU = Standard Run Hours per Unit
    • PC = Pieces Complete
    • AH = Actual Hours (Labor)
    • DFOR = Department Fixed Overhead Rate
    • SSHU = Standard Setup Hours per unit
    • EF = Efficiency Factor (100/ER)
    • ER = Efficiency Rate

    SET-UP: FOUV= ((SSHU - AH) * DFOR) / ER

    VOUV = (((SRHU / ER)* PC) - AH) * DVOHR)

    where:

    • VOUV = Variable Overhead Usage Variance
    • SRHU = Standard Run Hours per Unit
    • PC = Pieces Complete
    • AH = Actual Hours (Labor)
    • DVOHR = Department Variable Overhead Rate
    • SSHU = Standard Setup Hours per Unit
    • ER = Efficiency Rate

    SET-UP: ((SSHU) - AH) * DVOHR) / ER

    FMOUV = (((SRHU / ER) * PC) - AH)) * WCFOR

    where:

    • FMOUV = Fixed Machine Overhead Usage Variance
    • SRHU = Standard Run Hours (Machine) Per Unit
    • PC = Pieces Complete
    • AH = Actual Hours (Machine)
    • WCFOR = Work Center Fixed Overhead Rate (Machine)
    • ER = Efficiency Rate

    VMOUV = (((SRHU / ER) * PC)- AH)) * WCVOR

    where:

    • VMOUV = Variable Machine Overhead Usage Variance
    • WCVOR = Work Center Variable Overhead Rate (Machine)
    • ER = Efficiency Rate
  • Job Finish (Put to Stock):
      Debit Credit
    Inventory Material xxxx  
    Inventory Labor xxxx  
    Inventory Fixed Overhead xxxx  
    Inventory Variable Overhead xxxx  
    Inventory Outside xxxx  
    WIP Material   xxxx
    WIP Labor   xxxx
    WIP Fixed Overhead   xxxx
    WIP Variable Overhead   xxxx
    WIP Outside   xxxx

    Both inventory and WIP are posted with the quantity being put to stock multiplied by the Items form's standard unit cost of the item being moved to inventory.

    xxxx = (quantity completed * Items standard unit cost)

  • Job Close:

If the quantity of any material issued is more or less than the standard quantity required, the following accounts are adjusted:

  • Material Usage Variance
  • Fixed Material Overhead Usage Variance
  • Variable Material Overhead Usage Variance
  • WIP Material
  • WIP Labor
  • WIP Fixed Overhead
  • WIP Variable Overhead
  • WIP Outside

The material usage variance amount is the difference between the standard quantity required and the actual quantity issued, extended by the standard cost of the material.

The overhead variance amounts are material usage variance extended by the fixed and variable material overhead rates.

If subsequent to this transaction there is any remaining WIP amount (+ or -), the following adjustment is made.

  Debit Credit
a. If remaining WIP amount is greater than (>) 0 then:    
Routing Variance xxxx  
WIP Material   xxxx
WIP Labor   xxxx
WIP Fixed Overhead   xxxx
WIP Variable Overhead   xxxx
WIP Outside   xxxx
b. If remaining WIP amount is less than (<) 0 then:    
WIP Material   xxxx
WIP Labor xxxx  
WIP Fixed Overhead xxxx  
WIP Variable Overhead xxxx  
WIP Outside xxxx  
Routing Variance   xxxx

This transaction may be necessary since the WIP account is increased with amounts that are based on the standard times and rates that are established for the job. The decrease of the WIP in the job finish transaction is based on the standard cost of the item being manufactured. If the total standards for the job do not match the standard unit cost of the item, this adjustment to WIP needs to be made.

If the job is not closed at the time the job transaction is posted, the above transaction is posted at the time the status of the job is manually changed from (R)eleased to (C)omplete.

Customer Order Transactions

The following transactions are posted to the inventory distribution journal named CO Dist.

  • Customer Order Shipment:
      Debit Credit
    COGS Material xxxx  
    COGS Labor xxxx  
    COGS Fixed Overhead xxxx  
    COGS Variable Overhead xxxx  
    COGS Outside xxxx  
    Inventory Material   xxxx
    Inventory Labor   xxxx
    Inventory Fixed Overhead   xxxx
    Inventory Variable Overhead   xxxx
    Inventory Outside xxxx  

    This transaction is processed using the quantity shipped and the item's standard unit cost:

    xxxx = (quantity shipped * Items form's standard unit cost)

  • Customer Order Return:
      Debit Credit
    Inventory Material xxxx  
    Inventory Labor xxxx  
    Inventory Fixed Overhead xxxx  
    Inventory Variable Overhead xxxx  
    Inventory Outside xxxx  
    COGS Material   xxxx
    COGS Labor   xxxx
    COGS Fixed Overhead   xxxx
    COGS Variable Overhead   xxxx
    COGS Outside   xxxx

    This transaction is processed using the quantity returned and the item's standard unit cost:

    xxxx = (quantity returned * Items form's standard unit cost)

Inventory Control Transactions

The following transactions (unless otherwise specified) are posted to the inventory distribution journal named IC Dist.

  • Inventory Adjustment Transaction:
      Debit Credit
    a. Increase quantity:    
    Inventory Material xxxx  
    Inventory Labor xxxx  
    Inventory Fixed Overhead xxxx  
    Inventory Variable Overhead xxxx  
    Inventory Outside xxxx  
    Inventory Adjustment   xxxx
    b. Decrease quantity:    
    Inventory Adjustment xxxx  
    Inventory Material   xxxx
    Inventory Labor   xxxx
    Inventory Fixed Overhead   xxxx
    Inventory Variable Overhead   xxxx
    Inventory Outside   xxxx

    The amount used for an inventory adjustment transaction is the adjustment quantity multiplied by the standard unit cost of the item.

    Cycle counting and physical inventory posting create transactions like the transactions depicted previously. Either transaction a or b is created, depending on whether the count quantity is greater than (>) or less than (<) the original quantity.

  • Inventory Move:
      Debit Credit
    Inventory Material xxxx  
    Inventory Labor xxxx  
    Inventory Fixed Overhead xxxx  
    Inventory Variable Overhead xxxx  
    Inventory Outside xxxx  
    Inventory Material   xxxx
    Inventory Labor   xxxx
    Inventory Fixed Overhead   xxxx
    Inventory Variable Overhead   xxxx
    Inventory Outside   xxxx

    This transaction is only posted if the From and To locations specified on the form have different inventory accounts tied to them. The amount used is the move quantity times the standard unit cost.

  • Location Update:

    A transaction is created if you change the inventory account tied to the location. (The example assumes that all cost details accounts are changed.)

      Debit Credit
    Inventory (New accounts)    
    Inventory Material Cost  1101 xxxx  
    Inventory Labor Cost 1102 xxxx  
    Inventory Fixed Overhead Cost  1103 xxxx  
    Inventory Variable Overhead Cost 1104 xxxx  
    Inventory Outside Cost 1105 xxxx  
    Inventory (Old accounts)    
    Inventory Material Cost  1001    xxxx
    Inventory Labor Cost  1002   xxxx
    Inventory Fixed Overhead Cost  1003   xxxx
    Inventory Variable Overhead Cost 1004   xxxx
    Inventory Outside Cost 1005   xxxx

    The amount used is the quantity at the location multiplied by the standard unit cost of the item.

  • Location Insertion:
      Debit Credit
    Inventory Material xxxx  
    Inventory Labor xxxx  
    Inventory Fixed Overhead xxxx  
    Inventory Variable Overhead xxxx  
    Inventory Outside xxxx  
    Inventory Adjustment   xxxx

    This transaction is only posted if a quantity is entered for the location at the same time it is added. The amount is the quantity entered multiplied by the item's standard unit cost.

  • Roll Current Cost to Std Cost utility:
      Debit Credit
    a. If the new standard is greater than (>) old standard:    
    Inventory Material xxxx  
    Inventory Labor xxxx  
    Inventory Fixed Overhead xxxx  
    Inventory Variable Overhead xxxx  
    Inventory Outside xxxx  
    Inventory Adjustment   xxxx
    b. If the new standard is less than (<) old standard:    
    Inventory Adjustment xxxx  
    Inventory Material   xxxx
    Inventory Labor   xxxx
    Inventory Fixed Overhead   xxxx
    Inventory Variable Overhead   xxxx
    Inventory Outside   xxxx
  • Miscellaneous Receipt:
      Debit Credit
    Inventory Material xxxx  
    Inventory Labor xxxx  
    Inventory Fixed Overhead xxxx  
    Inventory Variable Overhead xxxx  
    Inventory Outside xxxx  
    Account Entered   xxxx
    Purchase Cost xxxx xxxx

    The amount used is the quantity entered multiplied by the item's standard unit cost.

    The credit account is the GL account number entered by you. The account defaults to the item's Inventory Adjustment account.

    All variances are posted to the account found in the Purchase Cost field on the item's Product Codes form.

  • Miscellaneous Issue:
      Debit Credit
    Account Entered xxxx  
    Inventory Material   xxxx
    Inventory Labor   xxxx
    Inventory Fixed Overhead   xxxx
    Inventory Variable Overhead   xxxx
    Inventory Outside   xxxx

    The amount used is the quantity entered multiplied by the item's standard unit cost.

    The debit account is the GL account number you entered. The account defaults to the item's Inventory Adjustment account.

  • Job Issue:

    The following transactions are posted to the inventory distribution journal named SF Dist.

      Debit Credit
    WIP Material xxxx  
    WIP Labor xxxx  
    WIP Fixed Overhead xxxx  
    WIP Variable Overhead xxxx  
    WIP Outside xxxx  
    Inventory Material   xxxx
    Inventory Labor   xxxx
    Inventory Fixed Overhead   xxxx
    Inventory Variable Overhead   xxxx
    Inventory Outside   xxxx
    Fixed Material Overhead Applied   xxxx
    Variable Material Overhead Applied   xxxx

    At the time of issue, the work in process account is debited and the inventory account is credited with the standard unit cost of the item issued multiplied by the quantity issued plus overhead. At the time of job close, the material quantity variance is calculated, the work in process account debited, and the material usage variance account credited.

      Debit Credit
    Material Usage Variance   xxxx
    WIP Material xxxx  
    WIP Labor xxxx  
    WIP Fixed Overhead xxxx  
    WIP Variable Overhead xxxx  
    WIP Outside xxxx  
  • Job Receipt:

    The following transactions are posted to the inventory distribution journal named SF Dist.

      Debit Credit
    Inventory Material xxxx  
    Inventory Labor xxxx  
    Inventory Fixed Overhead xxxx  
    Inventory Variable Overhead xxxx  
    Inventory Outside xxxx  
    WIP Material   xxxx
    WIP Labor   xxxx
    WIP Fixed Overhead   xxxx
    WIP Variable Overhead   xxxx
    WIP Outside   xxxx

    Both inventory and WIP are posted with the quantity being put to stock multiplied by the Item Maintenance standard unit cost of the item being moved to inventory.

    xxx = (quantity completed * item standard unit cost)

    If, subsequent to this transaction, there is any remaining WIP amount (+ or -) the following adjustment is made.

      Debit Credit
    a. If remaining WIP amount is greater than (>) 0:    
    Other WIP Variance (Routing Variance) xxxx  
    WIP Material   xxxx
    WIP Labor   xxxx
    WIP Fixed Overhead   xxxx
    WIP Variable Overhead   xxxx
    WIP Outside   xxxx
    b. If remaining WIP amount is less than (<) 0:    
    WIP Material xxxx  
    WIP Labor xxxx  
    WIP Fixed Overhead xxxx  
    WIP Variable Overhead xxxx  
    WIP Outside xxxx  
    Other WIP Variance (Routing Variance)   xxxx
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